Fitch Ratings said India is less vulnerable to the risk of outflows two years after the U.S. first proposed unwinding monetary stimulus, as lower oil prices help improve its external balances and policy makers seek to boost growth.
India, Brazil, Indonesia, South Africa and Turkey were dubbed the “Fragile Five” by Morgan Stanley for being the most at risk of capital flight in 2013 when the Federal Reserve considered phasing out its asset purchases. Brazil and South Africa’s macroeconomic profiles have weakened since, while India and Indonesia’s have improved, Fitch said in a report Thursday. Turkey’s reliance on external financing remains large, it said.
Fitch’s assessment comes a day after BlackRock Inc., the world’s largest money manager, said the emerging-market swoon triggered by the Fed’s so-called taper tantrum two years ago is destined to repeat itself and the selloff will be every bit as painful as the rout in May 2013. Fed policy makers on Wednesday left open the possibility of raising interest rates in the second half of this year by playing down the significance of the U.S. economy’s slowdown in the first quarter.
A 39 percent drop in oil prices in the past year has curbed inflation in India, which imports about 80 percent of it crude, and helped narrow its current-account deficit. Global funds have poured $14.7 billion into the nation’s stocks and bonds in 2015 as the central bank cut interest rates and the government eased investment rules to boost economic growth. The rupee has rebounded 8 percent since plunging to a record 68.845 a dollar in August 2013.
“India’s vulnerability has declined,” the Fitch report said. “A changing policy environment has had a positive impact on its macroeconomic risk profile.”
While Indonesia’s policy track record has strengthened, it remains vulnerable to external shocks, Fitch said. Brazil’s current-account deficit widened to 3.9 percent in 2014 while South Africa has a persistent high twin budget and current account deficit alongside low growth, according to the report.
Though Turkey didn’t see a sudden stop of capital inflows in the previous episodes of market volatility, it remains largely dependent on external financing, Fitch said.